Before the Federal Communications Commission Washington, Dc 20554
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BEFORE THE FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, DC 20554 ) In re Applications of ) ) VERIZON COMMUNICATIONS INC., ) Transferor ) ) and ) WCB Docket No. 06-113 ) AMERICA MOVIL, S.A. DE C.V., ) Transferee ) ) for Consent to the Transfer ofControl of ) Entities Holding Commission Licenses and ) Authorizations Pursuant to Seetions 214 and ) 31 O(d) ofthe Communications Act. ) REPLY TO OPPOSITION Veronica M. Ahern Leslie Paul Machado NIXON PEABODY LLP 401 Ninth Street, NW - Suite 900 Washington, DC 20004 (202) 585-8321 Its Attorneys July 31, 2006 10058424.3 Summary The Telecommunications Regulatory Board of Puerto Rico ("Board") hereby replies to the Opposition of America M6vil, S.A. de C.V. and Verizon Communications Inc ("Applicants"). In their Opposition the Applicants once again fail to commit to any credible public benefit to Puerto Rico. Even the vaunted commitment to bring 3G to Puerto Rico is hobbled by two caveats, and the touted "economies of scale and scope" do not exist in the U.S. wireline market, where America M6vil has no other operations. Further, it is reasonable to suppose that America M6vil's preferred solution to penetration challenges will be to abandon the wireline infrastructure in favor of investment in wireless. But this will have a severely negative impact on developing competition in Puerto Rico. The legal standard relied upon by the Applicants does not require "absolute certainty" or "iron-clad" commitments, but it does require some credible public interest benefit. In this case, there is none. Consequently, the Commission should impose conditions to remedy the failings of the Applications. These conditions should consist of reasonable and achievable performance measures designed to assure quality of service to Puerto Rico consumers and competitors and specific commitments on infrastructure investment to improve telephone penetration as well as for its expansion, improvement and modernization. -2- 10058424.3 TABLE OF CONTENTS I. BACKGROUND 2 A. Petitions to Deny 2 B. The Opposition 4 II. ARGUMENT 5 A. The Applicants Again Fail To Demonstrate Concrete Public Benefits 5 B. The Applicants Effectively Concede That They Have Failed to Demonstrate Concrete Public Benefits 7 C. Imposition ofRemediative Conditions Would Serve The Public Interest... 8 III. CONCLUSION 11 10058424.3 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, DC 20554 ) In re Applications of ) ) VERIZON COMMUNICATIONS INC., ) Transferor ) ) and ) WCB Docket No. 06-113 ) AMERICA MOVIL, S.A. DE C.V., ) Transferee ) ) for Consent to the Transfer ofControl of ) Entities Holding Commission Licenses and ) Authorizations Pursuant to Sections 214 and ) 31 O(d) ofthe Communications Act. ) REPLY TO OPPOSITION The Telecommunications Regulatory Board of Puerto Rico ("Board"), by its attorneys, hereby responds to the Opposition filed by America M6vil, S.A. de C.V. ("America M6vil") and Verizon Communications Inc. ("Verizon", together "Applicants") in connection with the above captioned Applications requesting Federal Communications Commission ("FCC" or "Commission") approval of a transfer of control of Telecommunicaciones de Puerto Rico (TELPRI") subsidiaries PRT Larga Distancia ("PRT LD") and the Puerto Rico Telephone Company ("PRTC"). PRTC is the Incumbent Local Exchange Carrier in Puerto Rico. The Applications propose the transfer of control of TELPRI from Verizon to a wholly-owned subsidiary ofAmerica M6vil. 10058424.3 I. BACKGROUND A. Petitions to Deny A number of interested parties filed Petitions to Deny the applications, or comments requesting that the Commission take notice ofpublic interest concerns. 1. The Board The Board, the entity in Puerto Rico with responsibility for promoting competition and protecting the consumer, found the purported public interest benefits of the transaction to be hollow and meaningless, with no specifics or actual commitments. There were no credible public interest benefits described in the application. For that reason, the Board urged the Commission to deny the applications unless remediative conditions are imposed. Those conditions would require that PRTC meet specific quality of service measurement and reporting standards and make a substantial commitment on infrastructure investment. These regulations, which would be phased in over time, are both reasonable and achievable by any company genuinely interested in improving telephone service in Puerto Rico. Adoption of the standards would benefit both the retail and wholesale PRTC customer. 2. Legislative Officials The Honorable Kenneth D. McClintock and the Honorable Orlando Parga, President and President Pro Temp of the Senate of Puerto Rico respectively, did not directly oppose grant of the applications.! However, they raised several public interest concerns including foreign control of a "virtual monopoly" in wireline telecommunications in Puerto Rico and resulting national security implications. The Legislators were not confident of the "promises" made in the application particularly given that Telmex, a close affiliate of America M6vil charges "some ofthe highest phone rates in the world.,,2 3. TLD Telef6nica Larga Distancia de Puerto Rico ("TLD"), a provider of intrastate long distance service in competition with PRT LD, agreed with the Board that the Hon. Orlando Parga is also Chainnan ofthe Senate's Committee on Federal and Consumer Affairs. Legislators' Motion at 4, citing The Wall Street Journal, June 21,2006 at A12. - 2 - 10058424.3 applicants have shown no meaningful public interest benefits and pointed to perceived detriments as evidence that the Commission should deny the application. Among these detriments would be the anti-competitive impact of acquisition by America M6vil and Telmex, both known as ruthless defenders of market power with a history of impeding competition and opposing measures that would increase the level of competition. In Puerto Rico, where the market is vulnerable to this competition-limiting behavior, acquisition of the monopoly ILEC would be uniquely detrimental. TLD also noted the stake that AT&T has in America M6vil and Telmex and raised concerns about control over both ends of international calls to countries that account for the heaviest traffic to and from Puerto Rico. 4. Centennial Centennial Communications Corp ("Centennial"), a facilities-based Competitive Local Exchange Carrier competing with PRTC, was concerned that the transaction would transfer control of a major American ILEC to a foreign entity without any "discernable natural affinity" for fulfilling the obligations of the 1996 Communications Act.3 Centennial's objective is to assure that the new owners of PRTC will devote the time, management attention, and financial resources adequate to ensure compliance with PRTC's duty to open the market. To remedy this concern, Centennial proposed three conditions, including outside compliance auditing, protection from cross-subsidization and attention to national security and law enforcement issues. 5. Department ofJustice The Department of Justice, including the Federal Bureau of Investigation, with the concurrence of the Department of Homeland Security, requested that the FCC defer action on the application until resolution of national security, law enforcement and public safety Issues. 6. WorldNet WoridNet Telecommunications, Inc. ("WoridNet"), another CLEC competitor of PRTC, argued that the transaction would cause substantial competitive harm to the CenlenniaJ Pelilion al 5. - 3 - 10058424.3 market in Puerto Rico. Unlike any other acquisition, this is a case of a dominant ILEC being ultimately controlled by a dominant foreign carrier, with both carriers having "long anticompetitive track records.,,4 Accordingly, the public interest requires that the Commission deny the transaction or adopt conditions and safeguards to assure the continued competitive development ofthe Puerto Rico market. 7. Sprint Sprint Nextel Corporation ("Sprint") did not file a Petition to Deny, but did comment expressing its concern that PRTC's dominant position in Puerto Rico renders other service providers vulnerable to anti-competitive practices. Sprint is particularly concerned that a minimum allocation ofresources to meet other service provider's needs, will damage the growth ofcompetition in Puerto Rico. Sprint suggests that the transaction be conditioned upon sustained, measured and monitored performance in meeting obligations to customers. B. The Opposition America M6vil and Verizon ("the Applicants") oppose the Petitions to Deny. First they insist that the transaction will produce public benefits, as claimed in the Applications. Second, they claim that Commission precedent does not require iron-clad commitments or absolute certainty. All that is needed is a determination that the transaction as a whole is in the public interest. This determination is achieved through a balancing test. Where, as in this case, potential harms are unlikely, "demonstration ofpotential benefits need not be as certain."s Next the Applicants claim that the transaction will not adversely affect competition in any market, since there is no increase in concentration. Moreover, the state of competition is healthy, as both Centennial and WorldNet admit to success and the Board has stated that Puerto Rico today is "characterized by competition.,,6 The Applicants also dismiss concerns about America M6vil's foreign ownership, claiming that granting an authorization to an entity from a WTO-member country does not raise 4 WoridNet Petition at 2.